The gold trade sees a glimmer of hope for increasing prices after a year of knock-backs from the strengthening US dollar.
In 2015, the dollar price of an ounce of gold dropped by 11%, but trade body The World Gold Council argues that the year was a blip because the market has other drivers that were overlooked.
The US accounts for 10% of the world’s gold sales and most are in local currencies, making the dollar price appear more significant than the price in Indian rupees or Chinese renminbi, which account for a much larger percentage of transactions.
“The price of gold improved in many emerging market currencies, such as Turkey, Russia and Indonesia,” said a World Gold Council spokesman.
It’s not all about the US dollar
“The signs for gold are encouraging. Demand is up in the two largest markets of India and China and central banks are buying gold to bolster reserves.”
Statistics released by the council show that gold prices rise and fall in five year cycles and that the market is edging towards the end of the current cycle. (See table below)
The average length of a bear cycle is 47 months and the median 52 months.
“This year will be different,” said the spokesman. “The US Fed has raised interest rates for the first time in almost a decade and expects to raise them higher. Also the Asian markets are expanding and market risks from volatility are still out there which will push some investors towards gold rather than equities.”
Today’s spot price is US$1,101.90, compared to $1,060 a year ago. The all-time high was $1,664.75 in January 2013.
Read the full World Gold Council report here
Gold Bull and Bear Cycles
|Dates||Length (months)||Cumulative return|
|Jan 1970 – Jan 1975||61||451.40%|
|Oct 1976 -Feb 1980||41||721.30%|
|Mar 1985 – Dec 1987||33||75.80%|
|Apr 1993 – Feb 1996||35||27.20%|
|Oct 1999 – Sep 2011||144||649.60%|
|Jan 1975 – Sep 1976||20||-46.40%|
|Feb 1980 – Mar 1985||61||-55.90%|
|Dec 1987- Mar 1993||63||-34.70%|
|Feb 1996 – Sep 1999||43||39.10%|
|Sep 2011 – Present||52||-44.10%|
Source: World Gold Council